1961 (4) TMI 66 - SC - VAT and Sales Tax

Retrospective Tax Law Upheld: State Legislature's Power Affirmed

The Supreme Court held that the U.P. Sales Tax (Validation) Act, 1958, successfully validated the impugned notification dated March 31, 1956, by giving ... Whether the Validation Act is within the ambit of entry 54 in List II of the Seventh Schedule to the Constitution? Held that:- Appeal dismissed. None of the grounds urged by the petitioner in support of the contention that the Validation Act is ultra vires can be sustained. In the result we must hold that the Validation Act is intra vires, and the impugned notification dated March 31, 1956, stands validated by it. Issues Involved:1. Validity of the U.P. Sales Tax (Validation) Act, 1958.2. Interpretation of section 3 of the Validation Act.3. Competence of the State Legislature to enact retrospective tax legislation.4. Compliance with sections 8-A, 14, and rule 23 of the U.P. Sales Tax Act, 1948.Detailed Analysis:1. Validity of the U.P. Sales Tax (Validation) Act, 1958:The petitioner contended that the Validation Act did not effectively validate the impugned notification and was ultra vires. The Court held that the Validation Act was enacted to rectify the defect pointed out in Adarsh Bhandar v. Sales Tax Officer and Firm Bangali Mal v. Sales Tax Officer. The Act aimed to validate the notification dated March 31, 1956, by giving retrospective operation to section 3-A from March 31, 1956, instead of April 1, 1956. The Court concluded that the Validation Act successfully validated the impugned notification, making it effective for the period in question.2. Interpretation of Section 3 of the Validation Act:The petitioner argued that the words 'in the form in which they were in force immediately before the commencement of this Act' should qualify the word 'notifications' and not 'sections.' The Court rejected this contention, stating that the words 'in the form' could not refer to the impugned notification as it had never changed form, but were appropriate for section 3-A, which had been amended. The Hindi version of the Act clarified that the words qualified 'sections,' not 'notifications.' Thus, the impugned notification was within the saving of the Validation Act.3. Competence of the State Legislature to Enact Retrospective Tax Legislation:The petitioner argued that the Validation Act was not a law with respect to tax on sales of goods, as it imposed a tax retrospectively, which is inconsistent with the nature of a sales tax. The Court held that the power to impose a tax on sales includes the authority to enact retrospective legislation. The Court cited The Tata Iron & Steel Co., Ltd. v. The State of Bihar and other cases, affirming that the legislature's power to impose a tax is plenary and unrestricted, subject only to constitutional limitations. The Validation Act was within the ambit of entry 54 in List II of the Seventh Schedule to the Constitution.4. Compliance with Sections 8-A, 14, and Rule 23 of the U.P. Sales Tax Act, 1948:The petitioner contended that the provisions of sections 8-A, 14, and rule 23 contemplated only prospective legislation and would be impossible to comply with under the Validation Act. The Court stated that this consideration is irrelevant to the question of the Validation Act's validity. The power to enact retrospective legislation under entry 54 is not affected by the provisions of the U.P. Sales Tax Act, 1948. Even if those provisions contemplate a future levy, it does not limit the legislature's power to enact retrospective laws. The Court cited M.P. V. Sundararamier & Co. v. The State of Andhra Pradesh, affirming that the imposition of tax is valid even if existing rules do not provide a machinery for retrospective collection.Conclusion:The Supreme Court held that the U.P. Sales Tax (Validation) Act, 1958, is intra vires and effectively validated the impugned notification dated March 31, 1956. The petition was dismissed with costs.